How to Report Vehicle Expenses for IRS Tax Deduction
The IRS provides several methods for reporting vehicle expenses. The simplest method is the standard mileage rate. Here's what you'll need in order to report vehicle expenses at tax time.
In the United States, the Internal Revenue Service (IRS) allows you to claim a tax deduction for the business use of your personal vehicle. The IRS allows you to choose one of several methods for reporting your vehicle expenses.
The first thing you should do when reporting vehicle expenses for tax deduction is determine the method of calculation. The most common and probably simplest method for reporting vehicle expenses is the standard mileage rate. An alternative method is to use actual expenses incurred for your vehicle by collecting all the receipts for gas, insurance, repair, etc.
Standard Mileage Rate
If you choose to claim the standard mileage rate, you can calculate your deduction by multiplying the number of miles driven for business purposes by the current standard mileage rate set by the IRS.
Actual Expenses (FAVR)
Using the actual expenses method, also referred to as FAVR (Fixed And Variable Rate), you will need to keep records of all expenses related to the use of your vehicle for business purposes, including gas, oil, repairs, maintenance, insurance, and depreciation.
Regardless of the method you choose, it's important to keep accurate and detailed records of all your expenses, including the date, purpose, and distance traveled for each trip, and receipts for all expenses incurred.
Our mileage tracking app Psngr will help you automate the record keeping process, by logging all your mileage and generating the necessary reports.
If you choose to claim actual expenses, you will need to complete Form 2106 or 2106-EZ, depending on the type of expenses you incurred, and attach it to your tax return.
Finally, when you file your tax return, be sure to include the deductions related to the business use of your vehicle on Schedule A (Form 1040), Itemized Deductions.
It's important to note that the IRS has strict rules for determining what constitutes business use of a vehicle, and you must be able to demonstrate that the expenses were directly related to your employment. The IRS may also request documentation to support your claims, so it's essential to keep accurate and detailed records of all your expenses.